differences in political system can play an important role in economic decision making.
Political, legal, religious and economic organization of a society.
Property rights are perhaps the most basic institution studied by economists
[Koyama, Mark/Rubin, Jared. How the World Became Rich]
The legal system is the meta-institution that spells out the formal rules of the game and the manner in which they are enforced.
Legal system vary across societies. Many small-scale societies rely on informal and decentralized legal system based around ostracism and feuding.
The commercial revolution was characterized by the rivival of long-distance trade, spanned political borders and juristictions.
Yet, there were no political authorities capable of enforcing contracts between merchants opearting in different cities.So how could punishment be inforced?
An important set of instituions that played a role in the COmmerical Revolution were guilds.
Craft and merchant guilds regulate the European economy from the Middle ages to the industrial revolution
Craft guilds dominated urban life for much of the period between the 12th and 16th centuries. To participate in a trade, one generally had to be a member of a guild.
In a limited governemnt, the powers of the ruling elite are constrained.
There are checks on authority in each part of government. Such checks help economies grow.
They limit the ability of any group to extract too much.
How does states acquire fiscal capacity: